New rates of Stamp Duty Land Tax for non-UK residents from 1 April 2021

Hillier Hopkins LLP

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Rishi Sunak announced in the Spring Budget 2020 the implementation of a new 2% SDLT surcharge for non-UK residents purchasing UK residential property in England & Northern Ireland.

This 2% surcharge is applied on top of residential rates and the 3% surcharge which are already applicable to UK-resident purchasers. The new SDLT rates remain subject to approval by UK Parliament but they are expected to be as shown in the table below:

For example in June 2021 if a non-UK resident individual purchases a home in England for £1,775,000 their SDLT liability will be calculated as follows:

Residential property, lease premium or transfer valueNew SDLT rate for non-UK residentsCurrent SDLT rate for UK residents
Up to £125,0002%0%
From £125,001 to £250,0004%2%
From £250,001 to £925,0007%5%
From £925,001 to £1.5 million12%10%
Over £1.5 million14%12%

For example in June 2021 if a non-UK resident individual purchases a home in England for £1,775,000 their SDLT liability will be calculated as follows:

BandRateTax
£125,0002%£2,500
£125,0004%£5,000
£675,0007%£47,250
£575,000

The total SDLT liability is £162,250, if the 3% surcharge is applicable the liability increases to £215,500 (£162,250 + £53,250).

SDLT UK Resident Tests

To determine whether a buyer is a non-UK resident for SDLT purposes a number of tests have been devised which are dependent on the type of purchaser.

For individuals, the SDLT residency rules are applicable from the date of completion. Buyers will be classed as UK-resident if they are present in the UK for at least 183 days during the 12 months before completion. A day qualifies if an individual is present in the UK at the end of that day.

Careful planning around exchange and completion dates may allow an individual to avoid the 2% surcharge.

Buyers need be aware that they cannot rely on their nationality and residence status under the UK Statutory Residence Test when considering whether they are UK resident for SDLT purposes. Confusingly, an individual may not be considered UK resident on a personal tax basis but could be considered a UK resident for SDLT purposes.

The current climate is also likely to catch buyers unaware as a result of the fall in international travel due to the ongoing global COVID pandemic. Most will enviably fail the lookback test which will result in the 2% surcharge being applied to a purchase.

HMRC have proposed an avenue to reclaim the surcharge, if after the purchase, the individual is present in the UK for at least 183 days in the two-year period beginning a year before the purchase and ending a year after the purchase. With the proposed travel restrictions, it is possible that purchasers could also fail the look forward test.

The tests are applicable for each purchaser of the property, if one fails to meet the conditions above the surcharge will be applicable and it may potentially irrecoverable.

Unlike the 3% surcharge, the tests above are applicable to the purchaser only rather than the purchaser and their spouse/civil partner. A concession is included if a married couple are purchasing a property and one meets the test but the other fails the test. In this situation both purchasers are deemed to be UK resident.

Partners in a business partnership buying a residential property together will be treated as joint buyers. If one partner fails the tests above then the whole purchase will be subject to the surcharge.

Corporate buyers will be classed non-UK resident if they are not UK resident for Corporation Tax purposes at the date of buying the residential property. However, special rules will apply for UK resident companies which are under the direct or indirect control of non-UK resident persons.

The complexities above may catch buyers out as conveyancing solicitors are not tax advisers and do not always fully appreciate the tax technicalities surrounding SDLT. It is recommended that specialist advice is taken before a purchase completes.

The new rates do not apply to land, mixed-use properties (those containing residential and commercial elements, commercial or industrial buildings. These types of properties and are likely to remain attractive for overseas investors.

SDLT is a specialist area and advice should always be obtained before submitting a claim. Get in contact with Natasha Heron on natasha.heron@hhllp.co.uk or Meeten Nathwani on  meeten.nathwani@hhllp.co.uk.

Do you need extra information?
Natasha Heron

Natasha is a member of the ICAEW as a qualified auditor and the Chartered Institute of Taxation, specialising in indirect taxes. Natasha has developed a specialism as an adviser on the Stamp Duty Land Tax implications of property transactions.

Contact Natasha at Natasha.Heron@hhllp.co.uk or on 01923 634460